Experts Assess Deregulation As Factor in '03 Blackout

By MATTHEW L. WALD

Published: September 16, 2005

Twenty-five months after a blackout darkened cities from New York to Toronto and Detroit, the Energy Department and its Canadian counterpart held their first public technical discussion on the episode Thursday to talk about one factor widely considered to have been behind it: the deregulation of the electric system.

Engineers, government officials and executives said at the meeting that amid its restructuring the industry needed further changes to reduce the frequency of blackouts as utilities that formerly generated power, transmitted it and delivered it were broken up into separate entities of competing businesses.

''The most serious mistake we can make is pretending that markets do things that they do not do,'' said Kellan Fluckiger, executive director of the electricity division at the Alberta Department of Energy. ''Markets allocate risk, they allocate capital, they provide price signals. Markets do not have a conscience, they do not provide social policy, and they do not do things they are not paid to do.''

For example, participants at the meeting said, utilities that once ran the system sometimes added transmission lines to increase reliability of electric power. When they did so, their costs would be reimbursed through the regulatory process; now there is less incentive to take on such efforts, and several participants pointed out that in fact investment in transmission had lagged.

The blackout of 2003 began on Aug. 14 and in some places lasted more than two days. A binational report issued three months afterward did not list deregulation as a cause, instead citing factors like failure to trim trees, train operators and install control systems that could have kept track of the status of all power lines and generators.

Much of the investigation leading to that report was managed by the Federal Energy Regulatory Commission, the architect of utility restructuring in the United States. The report called for a separate study -- it did not say by whom -- on the role of deregulation in the blackout, but that study has never been done.

Experts at Thursday's meeting said the changes in the industry had had several adverse effects, including a loss of experience among personnel. One member of the panel, Jack Casazza, a 60-year veteran of the industry, said the changes had brought lawyers and M.B.A.'s to the head of these competitive companies, rather than engineers.

He also said that while the old utilities had often maintained large reserve margins of electricity, to minimize the chance of shortages, some market participants now preferred lower margins, to drive up prices.

Others pointed out that information like a power plant's maximum capacity, and its state of repair on any given day, was now considered proprietary and so was not readily available to system operators, which manage regional power grids.

The North American Electric Reliability Council, whose members come from utilities, marketers, customers and federal agencies, said in a paper submitted for the meeting that the increased demands that deregulation's wider trading had placed on the transmission system ''require the grid to be operated closer to its reliability limits more of the time than was the case in the past.''

That requires better training and control equipment, said the group, which was founded after a vast blackout in the Northeast in 1965.

Still, not all the industry's changes have affected reliability adversely, participants said. In a paper written for the meeting, Dave Goulding, chief executive of the Ontario Independent Electricity System Operator, said ''competition leads to trade and greater interconnectedness,'' which could increase reliability.

The energy bill signed into law by President Bush on Aug. 8 provides a mechanism for creating mandatory reliability rules. It allows the federal government to designate a private group, probably the North American Electric Reliability Council, as an official ''electric reliability organization,'' with authority to set the rules. But that group pointed out in its paper that while the designated organization would assess the adequacy of the system, it would not have the authority to require anybody to build a generating station or a transmission line.